4 Important Things to Consider When Choosing a KiwiSaver Fund
When it comes to choosing a KiwiSaver fund, there are over 250 to select from. Finding the right fund can mean a huge difference to how much money you end up with, whether you’re saving for that first home or for retirement.
Here are tips on four key areas that everyone should consider when comparing KiwiSaver funds:
Every investment carries risk. Without risk, there would be no reward - you wouldn’t make any money.
But there are different levels of risk for KiwiSaver funds. The level of risk appropriate for you is a very personal thing - it depends on what your goals are and what you are comfortable with.
What does this mean when it comes to comparing risk level of funds?
KiwiSaver funds are categorised on a spectrum according to risk. Lower risk funds, or conservative funds, tend to invest in things like cash and bonds which stay relatively stable through market changes. This means your balance stays relatively stable - you aren’t likely to see any major sudden increases or decreases.
Higher risk funds, i.e. growth or aggressive funds, invest in shares that fluctuate in response to the market. While you stand to gain more in the long term, you’ll also suffer greater losses on the way. You have to ride out the ups and downs.
These are general breakdowns of the difference in risk level. It’s important to know that there are NO set rules for how a KiwiSaver Provider categorises their funds. What one provider considers conservative, another might categorise as balanced. The difference comes down to what proportion of the fund is invested in growth assets. The greater the percentage allocated to growth assets, the higher the risk level of the fund.
The risk level you’re comfortable with depends on how much volatility you can tolerate. To put it simply, if you get excited by taking a gamble, you have a higher tolerance for volatility and are probably comfortable with a higher-risk fund. But if the thought of seeing your balance go up and down stresses you out, you’ll be more comfortable in a lower-risk fund.
It really comes back to your goals and your timeframe for achieving your goals. BetterSaver makes it simple to assess your comfortable risk levels against your goal timeline and help you determine what the best type of fund is for you.
Is your KiwiSaver fund killing bunnies?
Maybe. And if that upsets you, it’s important to pay attention to what exactly your KiwiSaver fund is supporting.
Some providers invest in funds that a lot of New Zealanders would not be proud to support. Even if they say they are investing responsibly, they may still be investing in funds that support things like fossil fuels, big tobacco, military weapons, animal testing, GMO’s, or human rights abuses.
While the situation seems to be improving as more Kiwis demand transparency, at the current time it can be really difficult to determine if your fund is invested in any of these areas.
BetterSaver has made it part of our mission to ensure that everyone is invested in a fund that matches their ethics. We continually analyze funds and assess their exposure to ethical issues. This way we can ensure that this aspect of your KiwiSaver fund lines up with your risk level and goals to find the right fund for you.
Returns are the money you make (or lose) on an investment. We all want positive returns!
Every KiwiSaver fund has an average rate of return. Most fund managers out there would like you to believe that their fund has the best returns. Sometimes they use misleading language, for instance by choosing to advertise their fabulous 3- or 6-months returns when their longer term returns - which matter a lot more - aren’t great. They hope you see the numbers they show you, and don’t think about it too hard.
While past performance is no guarantee of future performance (wouldn’t that be nice!) it can show us how the fund performed over time in comparison to its peers. So at a minimum, check out the fund’s three-year returns and see where it sits compared to the average. You can find this information in Morningstar Reports.
Better yet, you can let the pros at BetterSaver figure it all out for you. We crunch the numbers and assess all of the data, so you don’t have to.
Fees get a lot of media attention. They’re important, but they are not the most important aspect when it comes to comparing KiwiSaver funds. Low fees don’t mean better returns. How the fund performs and if it is the right risk level for you carry a heavier weight - if those are wrong, the fees are almost immaterial.
It’s expected that you pay a fee to a provider for investing on your behalf - they’re the experts and you’re paying them to manage your money. But there are a couple things to be aware of.
- What do the fees include? The services offered vary by each provider. If you’re paying for a service, you want to be using it.
- Does the advertised rate include the administrative fee? That rate can look significantly different once the annual fixed-rate administrative fee is added in, so watch out.
- Is there a performance fee? If your fund performs better than expected your provider might charge a little extra. Some providers do, some don’t.
The key takeaway when it comes to fees is that you want the best value for the lowest fees. BetterSaver ranks fund fees compared to their category average so it is easy to factor in when selecting the best fund for you.
Get unbiased advice
There’s a lot to consider when comparing KiwiSaver funds. The good news is you don’t have to go it alone.
People who seek financial advice from a certified advisor have an average of 52% more in their KiwiSaver compared to those who don’t. That’s powerful motivation to get help.
At BetterSaver, we make it easy by offering an online fund finder quiz to get you started. Our quiz is designed to ask you about your personal goals, risk tolerance, and ethics. Then we compare funds to find the one that will help you meet your goals. That’s right - we do all of the comparing, number-crunching, and reading the fine print for you, then offer you unbiased advice to easily switch to the best KiwiSaver fund.
Our team of financial experts has worked hard to develop an algorithm to help us do this quickly. If you want to chat to an actual human, we can do that too. Our financial advisors are here to help.
We’re passionate about making KiwiSaver advice accessible to help Kiwis create a better future. Find the best fund for you and start being a better saver today.